What Are Legal Entities And How Do I Use One For My Business?

Owning a business can be a very overwhelming task for many people, but the personal and financial satisfaction can be very rewarding. In order to obtain the highest possible amount of rewards, however, you need to properly setup the business according to its size and objectives. There are many organizational structures that are available for your new business, but only the most effective and best fit models should be selected and used.

Another important part of regulating your own business deals with making it actually legal to run in the United States and throughout the world. As you begin to setup your business model, you also have to choose a type of legal entity for your company. There are many types of legal entities to choose from, all depending on how you want to run your business.

LLC

A limited liability company is exactly what it sounds like; it provides limited liability to the business owners. This type of company protects business owners from being fully responsible for the acts or debts of the company, but also does not completely turn the ownership of the company over to the public. It is almost like a midway company for those owners wishing to control a company without being held fully responsible for any mishaps.

Within the structure of a limited liability company, there are two subcategories that can be chosen. The first type of Limited Liability Company deals with only one owner, who is regarded as the only person in charge of the company. This owner is also regarded as the only member that belongs to the company and is often labeled as "manager managed."

The second type of Limited Liability Company deals with multiple owners, and is labeled as "member managed." These multiple owners are also members of the company and are responsible for regulating, maintaining, and securing the affairs and actions that the company makes. Once again, this subcategory can be good or bad, depending on the type of business you are trying to create.

Sole Proprietorship

This type of company is only regulated by a single owner, who takes care of all the legal issues, tax regulations, and other important business regulations. This means that the owner has a lot more work to do and take care of in comparison to other legal entities that have multiple owners. One positive aspect about having a business that is labeled as a sole proprietorship is the fact that the entire entity is not taxed because all of the profits and income go directly to the single owner.

S Corporation

The S Corporation is one of the most popular types of legal entities in the business world because it first divides up the ownership among several different owners. A board of directors generally takes care of this type of business' basic functions and eliminates a lot of stress and work from a single owner. Another positive aspect of this legal entity is that the profit does not receive an income tax.